About Pick of the Day

Every day, I will try to find what I believe is the best looking short term currency trade setup for the upcoming trading day or week. If you're a forex newbie, it can be tricky trying to figure out how to look at charts and draw lines. My goal is help you understand the psychology behind price movements in the foreign exchange markets, so you can learn to analyze your own currency charts and trade on your very own. I will post my ideas and/or reviews through out each session right here, on Twitter and on Facebook.

Forex Review: Reflecting on My Q2 2014 Performance

As with the end of every quarter, it’s time to quickly reflect on the opportunities the market presented, as well as both the good and bad decisions I made. Here’s my reflection on my Q2 forex performance.

First the bad. Looking back, there was a bias that I held on to strongly that tripped me up: super bullish on New Zealand Dollar and quick theme changes for both the Aussie and Japanese Yen.

I was bullish on the Kiwi because the RBNZ was expected to hike interest rates (which they did), but the reaction wasn’t a huge bullish move because it had been already expected and priced in before hand. In April, Kiwi bulls were taking profits off of the table, which I saw as opportunities to get long on a pullback in NZD/CAD and NZD/JPY. Unfortunately for me, those pullbacks lasted longer and went deeper than I expected, all the way until June before the Kiwi found a bid once again and resumed its rally.

My second pair of losses came from playing AUD/JPY long (which turned against me when Aussie economic data turned sour and Japanese data turned a bit brighter) and then going short AUD/JPY, which turned again as traders refocused on monetary policy, interest rate differentials and a shift to broad positive risk sentiment. Both were great setups that I’d continue to take over and over again that just didn’t work out as the stories quickly changed.

And while I did have losses, the most frustrating thing for me was missing four winners because of my habit of waiting for pullbacks, letting big events scare me out of great trade setups, and trailing stops too tight. I was on point with the directional analysis for both NZD/CHF long and CAD/CHF long, but my entry techniques kept me out of both. I missed that CAD/CHF entry by 5 pips!

On my first EUR/USD short of the quarter and my GBP/USD short, I trailed my stop too tight, causing the former to miss out on a bigger profit, while the latter stopped out at breakeven before hitting my target.

And finally, I called of my EUR/USD short this week ahead of the ECB meeting. My entry at 1.3700 turned out to be the top of the week before sellers came in big after a strong NFP report yesterday. I’m not actually frustrated with this call as I think it was the proper procedure, but it’s always annoying to see big momentum moves that you were already setup to be in.

But to end on a positive note, I did have three winners and two open trades in USD/JPY and EUR/AUD that are currently profitable (they will count toward the third quarter). And I’m also not too beat up with my overall loss because it was a quarter in which we saw declining forex volatility and choppiness–always a tough environment to trade in if you’re a longer term swing trader.

So, that second quarter setback leaves my blog performance being up +0.97% for the year (not counting the open trades), still putting me above my benchmarks: the Barclay Hedge Currency Traders Index (-1.64% YTD thru the end of June) and the Barclay Hedge Discretionary Traders Index (+0.52% YTD thru June). Besides consistent profitability, consistently outpacing the “pros” is a long-term goal, both of which I still have many, many, many years of practice to go (and hopefully a lot of luck) for me to achieve.

Going forward, I’ll continue to try to improve my entry techniques by scaling in more, and I’ll try to give my trades more room to breath and be profitable by holding off the urge to trail my stop unless absolutely warranted.

That’s all I got for now forex friends…How did you do in Q2 2014? Please share your thoughts in the comment box below. Thanks for stopping by and good luck in Q3!

4 comments

Barclay Benchmarks (BB) for retail spot traders:
1) Should we understand BB data [see link below] to be about performance (ROI) or profit (ROR)?
—BB’s data suggests that annualized returns 1991-2013 are 3.9%. If that represents 20% of returns on clients’ money, that’s one story, but if 3.9% represents total returns on investment (and these data are comparable to a retail spot trader), why not just passively invest in the S&P 500 where both returns (and Sharpe ratio) are better?
[http://www.barclayhedge.com/research/indices/cta/sub/curr.html]

That’s a good question stan. There are many ways to play the market, which is dependent on various factors: timeframe, risk tolerance probably being the main two. The same goes for investors and how they want to allocate capital their investments. Sure, you can put all of your capital into the S&P and would have killed pretty much every other asset class out there over the past 5 years, but no market is a guaranteed winner every year. The S&P took a 30% hit between 2000 – 2003, and again in 2008 while it looks like the BB gained around 12% and 3.50% in those same periods. So, the question is do you want to put all of your eggs in the same basket or use different tools to diversify your capital investment? There’s no right or wrong answer as it really depends on you.

One more thing. My benchmark is the BarclayHedge numbers because my future goal is to manage other peoples money. For me, that means low risk but going for consistent returns, even if they are small. There’s a big market of investors who are looking for that, and currencies can be an alternative to equities or bonds. So, that benchmark is a good measure for me and longer-term currency investors, but probably not for those who are trying to swing big wins in forex.